The Indian rupee resumed its downward trend on Monday, weakened by sustained equity outflows and increased corporate hedging activity.
By 11:24 AM IST, the rupee was trading at 86.3675 against the U.S. dollar, slipping from its previous close of 86.2050 on Friday. This decline follows a brief recovery last week when the rupee gained 0.5%, reaching a two-week high on optimism surrounding emerging market currencies. The relief stemmed from U.S. President Donald Trump’s decision to hold off on imposing new tariffs on major trading partners.
“Each passing day without a tariff-related announcement from Trump gives hope that he might move cautiously on aggressive trade policies,” said Srinivas Puni, Managing Director at QuantArt Market Solutions. He noted that the rupee’s recent pullback aligned with a softer U.S. dollar, which depends on the Federal Reserve maintaining a neutral stance and Trump delaying further tariff actions.
However, Monday’s decline in Indian equities added pressure on the rupee. The Nifty 50 Index fell by approximately 1%, compounding foreign investors’ withdrawal of $7.5 billion from Indian stocks this month alone.
A currency trader at a major bank noted that persistent equity outflows and corporate clients’ hedging activities suggest any rallies in the rupee will likely be short-lived.
Focus Shifts to the Federal Reserve
Market participants are now closely monitoring the U.S. Federal Reserve’s policy meeting this week. While no changes to interest rates or new inflation projections are expected, Fed Chair Jerome Powell’s press conference will be scrutinized for signals about future policy moves.
In a note, Goldman Sachs stated, “We will listen for hints on whether the expected further decline in inflation could pave the way for rate cuts and how the Fed plans to manage uncertainties surrounding potential tariff increases and their impact on prices.”
The rupee’s performance remains tied to global economic factors, including U.S. monetary policy and trade developments. With the Fed expected to maintain a cautious stance, the dollar’s trajectory could influence emerging market currencies like the rupee in the coming weeks.
As market sentiment wavers, the rupee’s path forward appears uncertain, particularly amid ongoing foreign outflows and concerns about global economic trends.
